The rights of third parties in the arbitration process
The rise of globalization has brought about significant changes in the relationship between businesses, consumers, and legal systems worldwide. As legal entities, business organizations, and other institutions become more influential on an international scale, they must navigate a complex landscape of differing regulatory frameworks and laws.
Introduction to norm collisions and arbitration
The intersection of legal norms and institutional pluralism has given rise to what Professors Kreuder-Sonnen and Zurn describe as the "theory of interface conflict." This theory reflects the growing number of collisions between norms arising from international treaties, national laws, and customary law. As Kreuder-Sonnen and Zurn argue, these conflicts require a cross-institutional strategy and a more holistic approach to resolving competing legal principles.
The scope of these challenges can be taken a step further. Consider the ambiguous legal aspects of space resources, for example. According to legal researchers in the field, when conflicts arise, two main strategies can be employed to resolve them: (1) aligning the conflicting rules to avoid any direct contradiction, or (2) developing principles that establish the primacy of one set of norms over the other. These principles can take different forms: hierarchical (lex superior), temporal (lex posterior), or specific/general (lex specialis).
At the core of resolving these potential conflicts is the arbitration process, a method of dispute resolution that is typically informal and based on agreements between the parties. Various conventions, such as the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) and the Minsk Convention followed by several post-Soviet republics, outline the procedures and principles for arbitration, offering a framework for resolving divergent legal principles and jurisdictional overlaps.
Arbitration generally follows a set of agreed-upon rules that the parties involved have established at the outset of the agreement. However, third parties may also become involved in the dispute, either by collateral involvement or by the request to initiate an arbitration proceeding itself. As such, the rights of third parties need to be carefully considered, especially in light of the fact that arbitration is primarily designed for the parties to the original agreement.
Defining third parties
On a fundamental level, arbitration operates through an agreement. A party’s consent to a given agreement, usually indicated by a signed contract, forms the basis of its participation in the proceeding and its reception of the award made by the appointed arbitral tribunal (Tayyarli 2).
However, legal researchers highlight two main assumptions derived from this basic understanding: (1) it is possible to become a contract party without signing the relevant document, and (2) the fact that a party has signed the contract does not necessarily mean it consents to be a party in any given case.
This is where the involvement of third parties becomes relevant.
According to Article 7 from the United Nations Commission on International Trade Law Working Group on Arbitration (UNCITRAL) Settlement of Commercial Disputes Report from 2000, “a third person may become party to the contract, or may assume rights and obligations therefrom,” in the following instances:
when a contract confers a benefit to a third party;
where a contract or certain contractual rights are assigned to a third party;
where a new person becomes party to a contract as a result of novation; or
where as a result of a merger or demerger of legal persons a new legal person is in a position to exercise rights and obligations
The working group further states that “a third person may also become party to the contract by the operation of law, such as, for example, where an insurer, by way of subrogation, becomes entitled to exercise rights of the insured party.”
In the context of commercial transactions, the terms “third party” and “non-signatories” are often used interchangeably to describe entities under which an arbitration proceeding has been extended due to certain circumstances. These circumstances might be explained by several doctrines that commonly guide the outcomes.
Legal frameworks for third party involvement
Some models that have served as reference in arbitration legislation worldwide are listed below:
UNCITRAL Model Law on International Commercial Arbitration amended in 2006
International Chamber of Commerce (ICC) Rules of Arbitration, updated in 2021
German Arbitration Institute (DIS) Rules
London Court of International Arbitration (LCIA) Rules from 2020
Arbitration Rules for the Arbitration Institute of the Stockholm Chamber of Commerce (SCC)
International Center for the Settlement of Investment Disputes (ICSID) Rules
There are also doctrines that help develop legislation specifically concerning third-party involvement. To begin with, the “group of companies” doctrine explains arbitral extension to third parties based on the presence of a community of duties and interests (such as within a corporate group or partnership) and common ownership between the parties. A quintessential example of this doctrine in action is subsidiary companies operating under the directives of a parent company.
Arbitrators acting under the auspices of the ICC tend to recognize these relationships under obligatory premises (Tayyarli 5). Another significant factor considered by arbitral courts is the entities’ economic reality or ties that reveal the true intentions of companies when agreeing on a business transaction.
Of course, the doctrine is merely a principle rather than a statutory rule, and its existence does not necessitate a written arbitration agreement. In fact, UNCITRAL outlines the following requirements that fall in line with the group doctrine in the aforementioned report:
that the legally different firm subject to the arbitration agreement is a member of a group of companies that together form a single economic reality;
that the company took an active participation in the contract's conclusion and performance;
that the inclusion of the company in the arbitration agreement represents the mutual intent of all parties involved in the proceedings.
Additionally, a third party may be a state, which may act as a respondent in the arbitration case to facilitate the enforcement of the arbitration award. Article 2 of the UNCITRAL Model Law includes “the right of the parties to authorize a third party, including an institution,” to make such determinations.
The “corporate veil” theory also concerns the possibility of deceptive use of third-party involvement by entities attempting to avoid liability. It can be inferred that this concept is elongated in the right of parties to be protected from abusive arbitration practices, recognized under doctrines such as the UNCITRAL Model Law, Article 18.
Onto the rights: third party priveleges and limitations
We have discussed the right of third parties to participate in arbitration proceedings based on special circumstances, relationships, and roles that their involvement may have. Now, what other rights may non-signatory entities exercise?
Acording to procedural fairness prrinciples in arbitration rules (ICC Rules of Arbitration, Article 5), the right to be notified of the proceedings is one of them. The article states that third parties with a legal interest in the outcome of the arbitration have the right to receive notice of the proceedings.
Other relevant rights and priveleges include:
the right to present evidence or arguments: Procedural equality and due process guarantees under arbitration laws and institutional rules (e.g., UNCITRAL Model Law, Article 18).
the right to enforce or challenge an arbitration award: Enshrined in the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Article V.
the right to appoint (or serve as) an arbitrator: Institutional rules like LCIA Rules, Article 7, may sometimes permit the appointment of the arbitrator to be made by any third party.
the right to request joinder or consolidation: Found in institutional rules such as the ICC Rules, Article 7, and UNCITRAL Arbitration Rules, where third parties may request to join ongoing arbitration or seek consolidation of multiple proceedings if their interests align.
the right to subrogation: Recognized under laws governing insurance contracts and arbitration agreements (UNCITRAL Model Law, Article 7); insurers may assume the rights of insured parties to pursue arbitration claims after indemnifying them.
and lastly, the right to a fair and impartial tribunal: Guaranteed under international arbitration rules (e.g., UNCITRAL Model Law, Article 18) and human rights principles.
From my understanding, the rights of third parties in the arbitration process are limited to derivitive and indirect (rather than original and direct) rights. Third parties must establish a legal basis to initiate arbitration, and their involvement is overall contingent on procedural rules of the established agreement. Their access to certain privileges, such as the right to confidentiality, is often secondary, and once a valid party, they are bound by the same terms as the original document.
Uzbek case law and precendents
Article 63 in the Uzbekistan “Investments and Investment Activity” law disucsses “Settlement in Disputes” - a relevant chapter in navigating arbitration procedures on a local level. It reads that in the case of a foreign investment dispute, the order of its resolution is negotiation, mediation, and only then a referral to the appropriate national court. International arbitration courts stand as the last resort, which can be both a blessing and a curse for third party entities who become involved in the arbitration process.
The Uzbekistan Arbitration Law favors amicable dispute resolution mechanisms before escalation to litigation, which can prove entirely ineffective to third parties as there can be a denial in a binding relationship. Among available case law, this example is particularly interesting, given that the country relies on foreign investments which may be detrred from the unregulated confitions.
References
Kreuder-Sonnen, Christian, and Michael Zürn. "After Fragmentation: Norm Collisions, Interface Conflicts, and Conflict Management." Global Constitutionalism, vol. 9, no. 2, 2020, pp. 241-267. Cambridge University Press, https://doi.org/10.1017/S2045381719000315.
United Nations. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). 10 June 1958, United Nations, https://www.uncitral.org/pdf/english/texts/arbitration/NY-conv/1958_New_York_Convention_e.pdf.
Minsk Convention on Arbitration (1993). Convention on the Settlement of Investment Disputes between States and Nationals of Other States. 6 February 1993, https://www.uncitral.org/pdf/english/texts/arbitration/minsk-convention.pdf.
Myslebust, Nicolai Dypvik. “Theories of norm and collision between norms.” The Road to Outer Space, ch 5.7, 2020. Marlus Scandinavian Institute of Maritime Law, https://www.sjorettsfondet.no/journal/2020/535/m-2151.
Tayyarli, Kanan. “Involvement of third parties in the arbitration.” SSRN. 26 August 2021. http://dx.doi.org/10.2139/ssrn.3911746.
United Nations. Settlement of Commercial Disputes: Possible Uniform Rules on Certain Issues Concerning Settlement of Commercial Disputes: Written Form for Arbitration Agreement, Interim Measures of Protection, Conciliation. Report of the Secretary-General, United Nations Commission on International Trade Law, Working Group on Arbitration, Thirty-third session, 22 Sept. 2000. https://documents.un.org/doc/undoc/ltd/v00/572/71/pdf/v0057271.pdf
